With DOL’s Overtime Rule in Limbo – Now What?

Since the U.S. Department of Labor announced last May that its new Overtime Final Rule would become effective on December 1 and bring raises for about 4.2 million American workers, nonprofits and other employers spent six months dutifully planning how to comply. Then two weeks ago, a federal district judge in Texas surprised proponents and opponents of the new rule by granting an emergency motion and issuing a nationwide preliminary injunction blocking the rule from taking effect. (See the November 23 Special Edition of Nonprofit Knowledge Matters for details.) Then, last week the federal government filed a notice of appeal to challenge that decision. And in the next several days, depending on seemingly innocuous but extremely relevant factors such as whether the appellate court issues an expedited briefing schedule and when precisely this Congress adjourns sine die, other political forces could arise to determine whether the rule survives or gets buried.

What’s up? With all these moving parts, what’s a law-abiding, values-based nonprofit employer to do? Go ahead and implement the non-required changes; unravel job descriptions and revoke pay raises; tell employees to sit pat while we all wait for the courts, Congress, and the new Administration work things out? Or was it all just a colossal waste of time?

There is no one-size-fits-all answer. Let’s take the questions in reverse order.

Was it all just a complete waste of time?

Admittedly, very few employers would have voluntarily stepped forward to review their practices and invested the significant time it took learning the specifics of the new rule, developing various compliance options for their organization to use, computing how the rule would apply to each individual employee, and making finite decisions about how that employer would apply the options available to each employee in the expanded coverage zone of the new rule.

Yet, for those that took it seriously, benefits did occur, even if the new rule never ends up taking effect. For instance, some nonprofits learned for the first time that the overtime provisions of the federal Fair Labor Standards Act can apply to the nonprofit or even just certain employees, prompting them to properly classify employees as truly exempt or non-exempt under the duties test. Proper classification is good for the employee, plus good for the nonprofit employer to avoid unknowingly creating liability.

Also, as David Heinen of the North Carolina Center for Nonprofits writes in his excellent article, The Status (and Future) of the Overtime Rule, the North Carolina Center identified “a few pieces of good news from our conversations with hundreds of nonprofits that have wrestled with the overtime rule in recent months.” Here are two of his five sets of positive results:

“In thinking about the overtime rule, nonprofits have become much more attuned to how many hours their employees are currently working. Many organizations have learned that their staff often work through lunch and spend more time than they expected working remotely on weekends and in the evening. As a result, nonprofits have made changes to their personnel policies and practices to avoid overworking their staffs. Such changes include: ensuring that non-exempt staff have the opportunity to take a (non-working) lunch break; changing workloads of staff who are regularly working longer hours than what they are paid to work; and avoiding sending after-hours emails to non-exempt staff. …

Preparation for the overtime rule has given many nonprofits a greater appreciation of the quality and quantity of work that their employees do every day. It has also raised awareness that many nonprofit employees are underpaid for the work that they do. As more nonprofits have conversations about fair compensation practices with their boards and funders, this may ultimately lead to more reasonable pay for nonprofit workers – regardless of whether it is mandated by federal law.”

What’s a values-based nonprofit employer to do?

When first looking at the newly-announced Overtime Final Rule last May, many nonprofit leaders expressed sentiments along these lines: nonprofits have “moral support, but operational anxiety.” In other words, nonprofits saw the value to the people they serve, just as nonprofits as employers saw the value of treating their own employees fairly when those people work more than 40 hours a week. Yet, especially for nonprofits with government grants and contracts with fixed payments and rigid service requirements, nonprofit leaders often felt great anxiety on the operational side of how they could possibly raise the additional revenues required to pay higher amounts or make the required cuts in services if additional revenues are impossible.

At the end of the day, nonprofit leaders seeking guidance on what to do in light of the current uncertainty can return to their core values of treating everyone – their own employees and the people they serve – as fairly as possible, being guided by and not forgetting their original “moral support.”

What’s a law-abiding nonprofit employer to do?

If you haven’t already taken steps to comply with the new rule because you were waiting for December 1, remember that the federal Fair Labor Standards Act still requires you to classify and treat employees properly. So even though the higher dollar amounts of the Overtime Final Rule are still in limbo, the rest of the current law still applies.

Some nonprofits moved promptly and already complied with the requirements in the new rule. Should they move backwards to pre-rule status or move ahead? Again, Heinen offers wise practical advice in his article: “Even though it is legally permissible, it may be difficult to roll back some payroll changes that your nonprofit has already implemented. … On the other hand, your nonprofit may not need to immediately reclassify workers as non-exempt if their annual salary is below the $47,476 threshold (as long as they meet one of the duties tests and are paid an annual salary of at least $23,660).”

Actions your organization takes in the interim period between injunction and resolution will require a balancing of factors, some legal and some morale based. We recommend keeping mission in the forefront of those decisions.